We have closed our PTON position, realizing a 60% gain. While the PTON brand remains strong, the momentum behind the much-needed cost-cutting measures appears to be slowing. Our original investment thesis was based on the belief that the new CEO, Barry McCarthy, would execute prudent cost discipline and right-sizing initiatives, which would enable PTON to survive and ultimately grow. This view was reinforced by several judicious divestments and headcount reductions that helped instill confidence in the financial viability of the company. Within approximately one year, the total costs declined from $1.5B/quarter to $0.8B/quarter1. In previous quarters, the company had demonstrated a commitment to fiscal austerity, which bolstered our confidence in the company’s solvency. However, there was a noticeable tone shift towards growth in the last quarter, accompanied by an increase in costs of approximately $200 million from the previous quarter. Consequently, losses for Q2 20222 amounted to $200 million. We initially invested in PTON with the expectation that McCarthy would return the company to positive free cash flow territory, but we are no longer able to confidently estimate when this will occur.

1Excluding $169mm of one-time restricting and impairment charges

2Excluding one-time charges of $70mm

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